Shares of Under Armour (UAA - Free Report) were up nearly 6% through early afternoon trading hours Monday after analysts from Stifel said the sports apparel giant was making significant changes that should soon be apparent in its financial results.
Citing management’s renewed focus on operating efficiency, expense control, resource allocation, and commitment to earnings, Stifel today set a $27 price target for Under Armour—nearly 27% higher than Friday’s close.
According to Stifel’s analysts, Under Armour began showing signs late last year that “rational minds would prevail and focus would shift from cavalier growth to profitability.”
This has not been fully realized in the company’s actual numbers just yet, with better-than-expected Q1 revenue results being overshadowed by concerns about sluggish gross margins, but Stifel believes that should change soon.
“With the recent market evidence that performance athletic demand and channel inventories are healthy, we have increased confidence that inventories will be appropriately matched to demand before year-end and margins will inflect and margin improvement can continue in 2019 and beyond,” the firm wrote.
Under Armour shares are up nearly 50% in 2018 as the company looks to rebound from a two-year selloff that saw the stock crash more than 70% from its all-time highs. Fierce competition from Nike (NKE - Free Report) and Adidas (ADDYY - Free Report) exacerbated this volatility, raising questions about the effectiveness of founder and longtime CEO Kevin Plank.
Plank remains the company’s CEO, but Under Armour has made changes to its management team—including bringing in Aldo and VF Corp. (VFC - Free Report) veteran Patrik Frisk as its new president, a position that Plank previously held himself.
Stifel’s optimism is a part of a larger picture of improving analyst sentiment for Under Armour right now. Within the last 60 days, the company has seen 11 positive revisions to its full-year EPS estimates, lifting our Zacks Consensus Estimate by a penny in that time.
Still, earnings are projected to slump about 5% year over year in 2018, and one negative revision has kept the stock at a Zacks Rank #3 (Hold). Under Armour is not expected to see significant earnings momentum until next year, when current estimates are calling for adjust profits to surge about 87% from 2018’s estimated totals.
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